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Harnessing AI for consumer good: This week in regulation

18/07/19

The speed read

  • Harnessing AI for consumer good
  • New rules to help those with pre-existing medical conditions access travel insurance
  • Preparing for the end of LIBOR
  • Retail bank agrees to extend redress scheme for consumers affected by former debt collection practices
  • Money laundering conviction revealed after reporting restrictions lifted
  • Regulator looks to replace Gabriel and improve data collection

Harnessing AI for consumer good

At the recent AI ethics in the financial sector conference, FCA Executive Director of Strategy and Competition, Christopher Woolard discussed the regulator’s view of the potential uses of AI in the industry.

Currently within the industry, AI is primarily employed to streamline back-office tasks, with customer-facing technology still in the development phase. The potential harm presented by these solutions when they do come into existence will be dependent on the context of how they are deployed, so the regulator’s approach will also be determined on a case-by-case basis. High level principles, including transparency and accountability will help provide a framework.

Technology relies on public trust and a willingness to use it, so it must be used in their interests. With an increasing amount of data at their fingertips, firms may be tempted to use it in an uncooperative manner, but as long as consumers remain at the heart of all business decisions, the industry should stay on the right track.

The FCA has a program of external engagement with the industry and academics, but is also looking internally to ensure the regulator is fully prepared for any future challenges brought about by emerging technologies. This includes continuing with its work to become a more outcomes-focussed regulator.

 

New rules to help those with pre-existing medical conditions access travel insurance

The FCA has published a consultation paper outlining potential new measures to help consumers with pre-existing medical conditions (PEMCs) to access suitable travel insurance.

The consultation outlines new rules to ‘signpost’ consumers in specific circumstances:

  • Where cover is declined or cancelled mid-term due to a PEMC
  • When cover includes an exclusion for a PEMC which cannot be removed
  • Where cover includes an additional loading due to the disclosure of a PEMC.

The regulator also intends to work closely with stakeholders to improve consumer understanding of the travel insurance market, particularly around travelling with a PEMC and what influences the price they pay.

 

Preparing for the end of LIBOR

Andrew Bailey, Chief Executive of the FCA, gave an important update on the transition from LIBOR to other, risk-free rates.

The markets for the two leading alternatives, SOFR and SONIA, are growing, recently closing at half a trillion dollars and £129 billion, respectively. However, it’s not just about new business. Firms also need to convert outstanding, or legacy, LIBOR contracts. In the derivatives market there are a number of ways to achieve this, but the bond market requires consent solicitations in order for such conversions to take place. The loans market is currently the least advanced and a major transition programme is still needed.

There is no certainty for those who have not taken steps to move away from LIBOR by the end of 2021. Firms should be planning for LIBOR publication to cease after 2021. In the event that some panel banks do continue, LIBOR will be unrepresentative and not pass the relevant regulatory tests, therefore introducing more uncertainty into the financial system.

 

Retail bank agrees to extend redress scheme for consumers affected by former debt collection practices

A retail banking group has voluntarily agreed to extend its redress scheme for customers who may have paid unreasonably high debt collection charges imposed by two brands within the group.

Between 2003 and 2009, customers in arrears were charged a ‘debt collection charge’ of 16.4% of the outstanding balance, which the Office of Fair Trading deemed unfair in 2010. Following the initial stages of the redress programme, the banking group has confirmed it has recently written to an additional 18,500 customers and they will be compensated where records show they have paid unreasonable collection charges.

 

Money laundering conviction revealed after reporting restrictions lifted  

In July 2017 an individual was convicted of dealing in criminal property totalling £1.5m, gained through insider dealing. This activity was part of the FCA’s Operation Tabernula, one of the largest and most complex insider dealing investigations.

The individual in question was served with a Restraint Order, which prevented him from taking any steps to dispose of or diminish the value of his assets, which the individual failed to comply with, withdrawing £114,000 in cash and liquidating £82,500 worth of assets.

Now the reporting restrictions have been lifted, the FCA has published full details of the case.

 

Regulator looks to replace Gabriel and improve data collection

The FCA plans to move to a new data collection platform in order to improve the way it collects data from firms and ensure that its approach can be adapted to changing regulatory needs.

The Gabriel system, introduced in 2016, is the FCA’s primary means for collecting information from the firms it regulates and receives 500,000 submissions annually. As part of the FCA’s data strategy it is committed to ensuring its systems are efficient, easy to use and adaptable and it is believed that a new system is the best way to meet these objectives. All Gabriel users are being asked to complete the FCA’s feedback survey to help shape the regulator’s thinking.

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